India Must Eliminate GST on Essential Goods to Combat Inequality

By Sujit De

Every year, the Union Budget gives the government of India an opportunity to rid our country of its inclination towards indirect tax which is a cruel way to burden the poor and the middle class with more taxes than the rich. But year after year, every budget, unfortunately, clings to this practice.

This over dependence on indirect taxes has been adding insult to injury of rising inequality. Inequality in India has already reached an alarming proportion. As per the report filed by the Paris-based World Inequality Lab, India has one of the highest levels of income and wealth inequality in the world.

In India, the poorest of the poor have to cough up substantial and the same amount of indirect tax as their creamy counterparts when they are to buy anything from soap to slippers and from food to medicine.

If we calculate the percentage of indirect tax payment on one's total income, we will see that a poor person's contribution towards GST is higher than that of a rich person.

Moreover, when he buys an LPG cylinder or uses diesel dependent transports or tractors or faces inflation as a result of high tax on diesel and petrol, his contribution towards tax and tax related expenditures are naturally much higher than that of even the richest man in this country in proportion to their respective incomes.

While direct taxes depend on the taxpayers' ability to pay, indirect taxes are blind to the economic status of the taxpayers. Direct taxes are an equitable way to fill the State's coffers. More income tax must be levied on the higher income bracket as has been the general practice in developed countries. India needs to follow the modern welfare states that rely more on direct taxes like income tax, "super tax" for the super rich, and inheritance tax.

Interestingly, when a suggestion was made to introduce the inheritance tax in India, some politicians said that it would burden the poor and the middle class. But the fact is that it would actually protect them without burdening them with more tax.

Inheritance tax can reduce inequality because with this money, a government can provide social security to its citizens which protects the poor and the middle class. Moreover, as there is no income tax for a minimum income bracket, there would not be any inheritance tax upto a certain valuation of property. So, inheritance tax will not burden the poor and the middle class.

While a superrich in India can inherit huge property without paying a single rupee to the government coffers, a person has to pay 55 per cent in Japan as inheritance tax for it. It is 50 per cent in South Korea, 45 per cent in France, 40 per cent in the USA and the UK, 34 per cent in Spain, 33 per cent in Ireland, and 30 per cent in Belgium and Germany. Those countries spend the money to ensure that every citizen gets quality health care and quality education.

India needs to rectify its economic policy. Banks should sanction more micro-loans for farming, cottage, and small enterprises that can mainly generate employment and less NPA-generating macro-credits. Moreover, the poor who are reeling from high inequality, rising inflation, and nagging unemployment must not be burdened with GST. GST should exist only on luxury and non-essential goods. But essential goods and services must be free from taxation. Instead, India should rely more on direct taxes.